Republic Of Zambia

United Nations Development Programme Zambia

Ministry for Foreign Affairs of Finland

Access to finance

The Zambia Green Jobs Programme’s objective is to stimulate and promote the market for green and sustainable housing solutions in Zambia with the ultimate aim of creating jobs through MSMEs in the housing construction value chain. Jobs will be created once MSMEs engaged in the construction value chain are assisted through various interventions to increase their competitiveness, incomes and business growth prospects. The intervention ITC is involved in is enhancement of accessibility to affordable and appropriate finance on the supply side. This compliments financial literacy training, mentoring and couching on the demand side.

There is a wide array of financial services provided by different financial players both locally and internationally that MSMEs can access. These include bank loans; working capital; overdraft facility; order financing and invoice discounting; private equity; venture capital; grants, insurance and asset financing (leasing). Other forms of finance can come from family and friends; retained earnings; forming joint ventures; sub-contracting opportunities; hire purchase; franchising and bootstrapping.

In the housing construction value chain, the MSMEs can access the appropriate instrument depending on the nature of their business, the cycle, scale of a project and needs. For instance, saw millers could benefit more from leading facilities in order to purchase equipment and vehicles while hardware retailers might need order financing and invoice discounting. Building contractors might benefit more from joint ventures and subcontracting opportunities with all materials provided for, while architects and designers will rely more on own resources and retained earnings. As shown in Table 1, MSME in the housing value chain are engaged by all types of Developers from large scale projects to individual developers who build from their own savings incrementally. The Table illustrates the engagements of Developers with Financiers to deliver various types of housing solutions, depending on ones’ income levels.

ZGJP’s engagement with Financial Services Providers (FSPs)

The ZGJP is engaging FSPs i.e. banks and micro financial institutions (MFIs) to assist the targeted MSMEs to obtain affordable and appropriate finance. This is done through the following interventions:

  1. Trained MSMEs: ITC will assist FSPs to reduce their risks by training MSMEs in financial literacy and management through Financial Management Counsellors (FMCs). The FMCs train, mentor and coach the targeted MSMEs with the ultimate aim of assisting in bankable business plan preparation, submission and implementation. The role of FMCs to be pre-screen the business plans in order to reduce on time spent by FSPs in screening and adjudicating on MSME applications. FMCs are also able to track the implementation of the credit facility aimed at reducing default rates.
  2. Credit Guarantee Schemes (CGS) and Lines of Credit: ITC will further reduce the risk of lending to MSMEs for the FSPs by facilitating CGS and lines of credit earmarked for the targeted MSMEs. This will reduce the cost of borrowing by the implicit reduction or sharing of risk. The programme is however cognizant of the usual argument of market distortions and moral hazard behavior that could arise from such arrangement. Risk mitigation strategies will be developed to address such challenges.
  3. Capacity Building and Dialogue: ITC will provide capacity building for FSPs in areas that FSPs would require more in-depth knowledge to understand MSME unique requirements, industry specific knowledge and MSME lending assessment tools. ITC will also arrange opportunities for dialogue between the targeted MSMEs with the FSP on the programme. This assists both parties to understand each other’s needs and requirements for mutual benefit.
  4. Green Finance: ITC will work with the FSPs and the entire financial sector to enable them aware of the benefits of green finance. Green finance is defined as “financial products and service, under the consideration of environmental factors throughout the lending making, ex-post monitoring and risk management processes, provided to promote environmentally responsible investments and stimulate low carbon technologies, projects, industries and businesses” PricewaterhouseCoopers Consultants (PWC, 2013). FSPs can then adopt green finance principals, products and procedures when both identifying and assessing projects for funding.

Going green has several benefits, it supports the FSPs in terms of the growing requirements by shareholders of analysing performance using a Triple Bottom Line approach i.e. looks at social, economic and environmental benefits of an institution.

Another benefit is that green businesses such as alternative building technologies for constructing houses promoted by ZGJP, can be a good niche business opportunity for the FSPs to finance and make profit. There is also the benefit of accessing relatively cheaper sources of green funds from Development Financial Institutions (DFIs) and multilateral organisations. According to Table 1, large scale housing projects can be financed with funds from large private equity funds, DFIs, Multilateral organisations, grants and Public Private Partnerships (PPPs). Green funds can also be used to provide capital for green mortgages to stimulate the demand side for housing. FSPs can take advantage of such funds by leveraging on them for scalability.  


Typical housing financing system